Up to 40,000 jobs are at risk after Tata Steel revealed that it plans to pull out of the UK. This has left the Port Talbot plant, the UK’s biggest steelworks, and Tata’s other sites facing a race against time to secure their survival. Those sites employ a total of 15,000 people, and a further 25,000 livelihoods are under threat in the supply chain if the business collapses.

Nationalisation

The Labour leader says that because steel is a strategic asset, Tata’s UK business should be nationalised in order to safeguard its future – just as it was in its previous incarnation as British Steel. However, David Cameron and Sajid Javid, the business secretary, have played down the prospect of nationalising Port Talbot or the entire Tata UK business. Government officials have warned that taking over the company could carry a price tag of £1.5bn a year. Cameron said: “We are not ruling anything out. I don’t believe nationalisation is the right answer, what we want to do is secure a long-term future for Port Talbot and for other steel plants in the UK.” In addition to the government’s concerns, nationalisation could fall foul of European Union state-aid rules.

Encourage Tata to keep its UK steel business

The three major problems that have led to Tata looking to pull out of the UK are energy costs, the impact of China dumping steel in Europe, and its pension burden. Officially, Tata has said it is considering all its options, rather than simply selling the UK business, so this option is in theory still on the table. If the trade unions accept drastic cuts to their pensions and the government slaps higher tariffs on the importing of Chinese steel then this could clear the path for Tata to activate the turnaround plan for Port Talbot and its UK business. However, a source close to the company said the chances of enough being done to persuade Tata to keep its UK steel operations are “very slim”.

Facilitate a private sale through loans or temporary state ownership

Two Lanarkshire steel mills were saved from closure earlier in March after Tata sold them to metals group Liberty House in a deal that was brokered by the Scottish government. The transaction saw the Scottish government take temporary ownership of the Clydebridge and Dalzell plants before passing them on to Liberty. The UK and Welsh governments could look for a similar deal on Port Talbot and the rest of Tata’s UK business, but it will be far more complex because the size of the transaction would be much larger. Other options for the government would be to offer loans, loan guarantees or new procurement contracts to a buyer. European state-aid rules mean any loans or loan guarantees would have to be on terms similar to those on offer in the commercial world. However, Tata could also offer financial support. In fact, it might have to. Pensions experts believe the Pensions Regulator could push Tata to inject more than £2bn into the British Steel Pension Scheme, which has liabilities of almost £15bn and 130,000 members, making it one of the biggest pension schemes in the UK.

Facilitate a breakup of Tata’s UK business

The most likely option. Tata has more than a dozen sites in the UK, ranging from quarries in Cumbria to the blast furnace in Port Talbot. Finding a buyer for the whole lot is unlikely. Indeed, Tata sources say it has been trying for the last 18 months to find a buyer but nobody was interested. Liberty, the buyer of Tata’s Scottish assets, has expressed an interest in some of the “downstream” operations that recycle steel or convert it for specific uses. But there is a major problem with this option – the part of Tata Steel that is losing the most money and is therefore likely to be the most difficult part to sell is Port Talbot, the site that the government is desperate to save. Port Talbot and its blast furnaces actually produce raw steel from iron ore and coal, but this process is expensive and the most exposed to the impact of rising energy costs and China dumping steel in Europe. Buyers are likely to be thin on the ground. As a result, this option would require the government to either persuade Tata to provide the time to secure deals, temporarily nationalise the parts that take the longest to sell, or simply let parts of the business close.

Let Port Talbot and Tata’s entire UK steel business fail

The doomsday scenario, which would cost 40,000 jobs according to the IPPR thinktank. Tata Steel UK would fall into administration, with vulture funds and other businesses then buying the assets that take their fancy, with no guarantee they would be used to produce steel. Port Talbot could end up being bought by a property developer who wants to build houses and shops, which is what happened to Rover’s former plant at Longbridge. The pension scheme would have to enter the Pension Protection Fund. Britain would lose its biggest steelmaker and be left with a collection of smaller manufacturers across the country.